Robust Q1 REIT Earnings Led By Storage, Malls; Offices Lag

By Michael Aneiro

A.D. Pruitt offers a recap of the robust first-quarter REIT performance in today’s Wall Street Journal, with self-storage REITs like Extra Space Storage Inc. (EXR) and high-end shopping mall REITs like Simon Property Group Inc. (SPG) leading the way, while offices and apartments lagged. From the Journal:

Alexander Goldfarb, an analyst at Sandler O’Neill + Partners, said companies such as Simon outperformed because they own upscale malls and outlet centers that appeal to a broad range of consumers, and they haven’t been hurt much by the growing competition from the Internet….

Some office landlords didn’t do as well. New York-based Vornado Realty Trust, (VNO), a large office and retail REIT, reported Monday that funds from operations rose to $1.14 cents a share in the first quarter from 98 cents on an adjusted basis a year ago. Revenue increased 7.7% to $721 million. While most office landlords posted earnings largely in line with expectations, according to Mr. Goldfarb, Vornado’s quarterly funds from operations missed Wall Street’s target by nine cents as the company continues to dispose of its non-core properties. He also noted Vornado faces challenges in the Washington, D.C., area, a market challenged by a downsizing of the federal government.

Large apartment REITs reported strong rental growth, but they face a looming slowdown in growth because of rising competition and more people owning homes.

“We are moving into a new phase of the multifamily housing cycle, a more typical phase, characterized by higher levels of apartment supply and incrementally greater competition from for-sale housing,” David Stockert, chief executive of Post Properties Inc. (PPS) said during a recent conference call. He said added competition will result in “a more sensitive trade-off between pushing rents and sustaining high occupancy.”

The story notes that a slowly improving economy has allowed landlords to raise rents, while REIT valuations continue to improve, citing an index of 51 REITs that increased 1% in April and now shows REITs hovering above 2007 peak levels.